Sources…

You need a framework or strategy to evaluate the way your wealth works. If you don't have one, then when you need to make a decision, sometimes in a difficult moment, you won't make the best one. So, let's talk about something simple and useful.

Consider the center of your financial life. What is it? It isn't what you own. It isn't what you owe. It isn't even necessarily what you do. It's your "source of wealth." The structure that generates wealth and anchors many of the other decisions you make. Its performance will determine if you have $100 thousand, $1 million, $10 million, or $100 million.

The good news is that it is not complicated. There are only three ways to accumulate wealth:

• Concentrated Equity — Own an asset directly, like a building or stock in a company (yours or someone else's).
• Partnership Interest — Join a partnership and benefit from its performance. There are two flavors: financial partnerships (hedge fund or private equity fund) and non-financial partnerships (law, architecture, medicine, and others).
• General Wealth — If the first two categories don't apply to you, you sit here. It is different from the other two because it does not have a single concentration that defines it. This could be an ordinary paycheck, retirement accounts or other diversified investments, inheritance, or winnings (like gambling).

Keep in mind that none of this has anything to do with the amount of money involved; school teachers and investment bankers are both in general wealth. On the other hand, an associate at a law firm is in general wealth while a partner is in partnership interest.

What matters is that your source is substantial enough to change the trajectory of your life. Let me give you a personal example. I worked at JPMorgan for almost a decade. Jamie Dimon fell into the concentrated equity category (estimated $2.1 billion in JPMorgan stock and a net worth of roughly $2.6 billion) while I was in the general wealth category (I had JPMorgan stock but much much much less on a much much much lower net worth).

Knowing which category is yours is critical to understanding how it works, how to make it work better, and how to make decisions around it. If you're just getting started, it's also important to make sure you're emotionally ready to handle it. Working at a startup sounds sexy, but it is difficult for many reasons, not the least of which is that your equity is illiquid, expensive to access, tax-burdened, and downright risky.

Next we'll talk about the main obstacle to accumulating wealth in each category.